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Systemic risk in global volatility spillover networks: Evidence from option‐implied volatility indices
Author(s) -
Yang Zihui,
Zhou Yinggang,
Cheng Xin
Publication year - 2020
Publication title -
journal of futures markets
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.88
H-Index - 55
eISSN - 1096-9934
pISSN - 0270-7314
DOI - 10.1002/fut.22078
Subject(s) - volatility (finance) , economics , systemic risk , spillover effect , implied volatility , monetary economics , volatility smile , volatility risk premium , volatility swap , stock (firearms) , financial economics , quantitative easing , financial crisis , monetary policy , macroeconomics , central bank , mechanical engineering , engineering
With option‐implied volatility indices, we identify networks of global volatility spillovers and examine time‐varying systemic risk across global financial markets. The U.S. stock market is the center of the network and plays a dominant role in the spread of volatility spillover to other markets. The global systemic risks have intensified since the Federal Reserve exited from quantitative easing, hiked interest rate, and shrank its balance sheet. We further show that the U.S. monetary tightening is an important catalyst for the intensifying global systemic risk. Our findings highlight the pernicious effects of monetary tightening after an era of cheap money.